When auditing Hardees' combined consolidated financial statements, what must be obtained to design audit procedures?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the combined consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined consolidated financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined consolidated financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees' 2025 Franchise Disclosure Document, when performing an audit in accordance with Generally Accepted Auditing Standards (GAAS), auditors must obtain an understanding of internal control relevant to the audit. This understanding is necessary to design audit procedures that are appropriate for the specific circumstances. However, the audit is not for expressing an opinion on the effectiveness of Hardees' internal control, and accordingly, no such opinion is expressed.
This means that the auditors need to assess Hardees' internal controls to determine how reliable the financial information is likely to be. Internal controls are the policies and procedures Hardees has in place to ensure accurate and reliable financial reporting. By understanding these controls, the auditors can tailor their testing to focus on areas where there is a higher risk of misstatement.
For a prospective Hardees franchisee, this indicates that the company undergoes a thorough audit process. The auditors' understanding of internal controls helps them to design effective audit procedures, which ultimately provides a higher level of assurance that the financial statements are free from material misstatement. However, it's important to note that the audit does not provide a guarantee against all misstatements, especially those resulting from fraud.